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Transfer pricing is often talked about solely in a tax accounting context but actually determining transfer price requires the existence of a strategically good budgetary and cost accounting system in managerial reporting. If a company has designed a detailed, adequate cost accounting system, a key precondition for shaping transfer prices has been met, especially when it comes to transactions related to goods and services where a clear cost base is even more important than mark-up.

From 2022, an updated regulation will take effect, regarding the methodology for determining transactions between related persons. Since it was adopted in 2006, Minister of Finance regulation no. 53 had been in force unchanged.

The Danish tax authority increased the taxable income of Tetra Pak Processing Systems A/S due to shortcomings in transfer pricing documentation and continuous losses. The Danish Supreme Court reached the conclusion that the transfer pricing documentation filed by the company did not meet the requirements as the documentation lacked a competent comparability analysis.

Maintaining proper accounting on transfer prices and documenting the reasoning for conformity to market value is in the interests of every enterprise, as it avoids tax risks. In preparing documentation, the requirements of legal acts should be considered along with the specific company’s risks and needs.

The OECD (Organisation for Economic Co-operation and Development) regularly updates its 2017 transfer pricing guidance. It is worth keeping up to date with the OECD guidelines because transfer pricing regulations in Estonia and many other countries rely on the OECD’s guidelines.

In the case of the Finnish tax authorities and A Oy, we can see how incompetent preparation of transfer pricing documentation can create a large administrative burden for the company. Although the case ended in A Oy's favor, they had to spend time and money to have the decision of the Finnish tax authorities to adjust the taxpayer's transfer prices and add additional income tax on the adjusted profits annulled.

Grant Thornton has released a new guide to help international entrepreneurs navigate transfer pricing regulations in different countries and keep up with recent changes.

The restrictions established due to the COVID-19 pandemic have disrupted transfer pricing within international corporations. Even if the restrictions were to be eased, undertakings would face major uncertainty about risks and comparables for determining market value.

Enterprises conducting transactions with related parties, such as companies in the same group or persons related to the owners of the company, must take into consideration domestic and international transfer pricing rules. The idea of transfer pricing rules is to prevent related persons from agreeing to sell each other goods and services at lower or higher than market price, thereby also transferring profit and income tax base.

Transfer pricing guide

Maintaining proper accounting on transfer prices and documenting the reasoning for conformity to market value is in the interests of every enterprise, as it avoids tax risks. In preparing documentation, the requirements of legal acts should be considered along with the specific company’s risks and needs.

Many companies in the process of preparing annual reports for the last year find themselves facing the need to recognize transactions between related parties.